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This Web site contains a compilation of more than a thousand consumer finance  columns written by Tony Novak from the 1980s through 2006, updated and reformatted for maximum usefulness today.  New material was added after 2010.

Content is the opinion of the author and does not represent the position of any other person or entity. Information is from sources believed to be reliable but cannot be guaranteed.

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Legal damages are taxable income

originally posted: 11/22/2006  reposted: 2/18/2011 This post has not been recently reviewed or revised by the author and may be out of date. If you notice an error or are in doubt, please send a new question by email or ask for an update. Email

Q: Do damages awarded in court have to be reported as income?

A: Yes. Court-ordered damages are taxable income. The only exception is that personal injury awards are not taxable. Personal injury awards sometimes include nontaxable punitive amounts. In many cases there will be off-setting deductions that reduce the net effect of a taxable court settlement. If you are expecting a legal settlement, then the important thing is to work with a tax adviser before your attorney gets to the settlement stage of the legal process. If you wait until after the case is settled to ask tax questions, then there is little ht can be done to reduce the tax.


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